Cyert, R. M., & March, J. G. (1963) A Behavioral Theory of the Firm

Question 1

GOAL

Answer 1

Develop a new theory of the firm based on behaviour, aimed to open up the “black box” of the internal workings of organizations.

Question 2

Organizational goals

Answer 2

• Dimensions of the goals: We have argued that organizational goals change as new participants enter or old participants leave the coalition. We have argued that the operative goals for a particular decision are the goals of the subunit making that decision. Finally, we have argued that goals are evoked by problems.
• Aspiration level: These are set by the organization’s past goal, the organization’s past performance, and the past performance of other “comparable” organizations

Question 3

Organizational expectations

Answer 3

• Expectations are seen as the result of drawing inferences from available information.
• With respect to the process by which information is made available, we have cited particularly variables affecting search activity within the firm. Affecting the intensity and success of search are the extent to which goals are achieved and the amount of organizational slack in the firm. Affecting the direction of search are the nature of the problem stimulating search and the location in the organization at which search is focused.

Question 4

Organizational choice

Answer 4

• Choice takes place in response to a problem, uses standard operating rules, and involves identifying an alternative that is acceptable from the point of view of evoked goals.
• The standard decision rules are affected primarily by the past experience of the organization and the past record of organizational slack. The order in which alternatives are considered depends on the part of the organization in which the decision is being made and past experience in considering alternatives.

Question 5

Quasi resolution of conflict

Answer 5

Assumed that the coalition in an organization is a coalition of members having different goals. There needs to be a procedure for resolving conflict
> most organizations most of the time exist and thrive with considerable latent conflict of goals. Except at the level of non-operational objectives, there is no internal consensus. The procedures for “resolving” such conflict do not reduce all goals to a common dimension or even make them obviously internally consistent.

• Goals as independent constraints
• Local rationality
• Acceptable-level decision rules
• Sequential attention to goals

Question 6

Uncertainty avoidance

Answer 6

Much of modem decision theory has been concerned with the problems of decision making under risk and uncertainty.

Organizations avoid uncertainty:
1) They avoid the requirement that they correctly anticipate events in the distant future by using decision rules emphasizing short-run reaction to short-run feedback rather than anticipation of long- run uncertain events. They solve pressing problems rather than develop long-run strategies.
2) They avoid the requirement that they anticipate future reactions of other parts of their environment by arranging a negotiated environment. They impose plans, standard operating procedures, industry tradition, and uncertainty- absorbing contracts on that environment.
In short, they achieve a reasonably manageable decision situation by avoiding planning where plans depend on predictions of uncertain future events and by emphasizing planning where the plans can be made self confirming through some control device.

• Feedback-react decision procedures
  We assume that organizations make decisions by solving a series of problems; each problem is solved as it arises; the organization then waits for another problem to appear. Where decisions within the firm do not naturally fall into such a sequence, they are modified so that they will.
  > They use gross expectations to predict long term and operationalize them through frequently adjusting them based on day-to-day or week-to-week feedback.
• Negotiated environment
  Firms will devise and negotiate an environment so as to eliminate the uncertainty. Rather than treat the environment as exogenous and to be predicted, they seek ways to make it controllable. Examples are, establishing industry-wide conventional practices to achieve stability such as prices. Or internal planning systems to induce internal stability.

Question 7

Problemistic search

Answer 7

By problemistic search we mean search that is stimulated by a problem (usually a rather specific one) and is directed toward finding a solution to that problem. In a general way, problemistic search can be distinguished from both random curiosity and the search for understanding.

With respect to organizational search, we assume three things:
1. Search is motivated,
Search within the firm is problem oriented. A problem is recognized when the organization either fails to satisfy one or more of its goals or when such a failure can be anticipated in the immediate future. So long as the problem is not solved, search will continue. The problem is solved either by discovering an alternative that satisfies the goals or by revising the goals to levels that make an available alternative acceptable. Solutions are also motivated to search for problems. Pet projects (e.g., cost savings in someone else’s department, expansion in our own department) look for crises (e.g., failure to achieve the profit goal, innovation by a competitor). In the theory we assume that variations in search activity (and search productivity) reflect primarily the extent to which motivation for search exists. Thus, we assume that regular, planned search is relatively unimportant in inducing changes in existing solutions that are viewed as adequate.

2. Search is simple-minded,
   It proceeds on the basis of a simple model of causality until driven to a more complex one. Search is based initially on two simple rules:
   1) search in the neighborhood of the problem symptom and
   2) search in the neighborhood of the current alternative.
   When the first two rules do not succeed, and additional rule is introduced
   3) search in organizationally vulnerable areas
3. Search is biased,
   There is bias in:
   1) Bias reflecting special training or experience of parts of the organization
   2) Bias reflecting the interaction of hopes and expectations and
   3) Communication biases reflecting unresolved conflicts
   Those parts of the organization responsible for the search activities will not necessarily see in the environment what those parts of the organization using the information would see if they executed the search themselves.

Question 8

Organizational learning

Answer 8

Organizations exhibit adaptive behaviour over time. Organizations change their goals, shift their attention, and revise their procedures for search as a function of their experience. There are three different phases:

• Adaption of goals
  We assume that organizational goals in a particular time period are a function of (1) organizational goals of the previous time period, (2) organizational experience with respect to that goal in the previous period, and (3) experience of comparable organizations with respect to the goal dimension m the previous time period.
• Adaption in attention rules
  Just as organizations learn what to strive for in their environment, they also learn to attend to some parts of that environment and not to others.
  1) In evaluating performance by explicit measurable criteria
  2) In evaluating their comparative environment and ignore other parts
• Adaption in search rules
  When an organization discovers a solution to a problem by searching in a particular way, it will be more likely to search in that way in future problems of the same type; when an organization fails to find a solution by searching in a particular way, it will be less likely to search in that way in future problems of the same type.